Moreover the continuity assumption argues that businesses are created to exist indefinitely and stable currency is a business's unit of record according to the monetary unit assumption. Finally, the time period assumption agrees that the economic activities of businesses can be separated into various time periods in order to give objective financial reports (Shamrock, 2012).
Principles.
According to the full disclosure standard, trade-off analysis is important in deciding the kind and amount of information shared with stakeholders because information costs more to organize and utilize (Shamrock, 2012). Moreover, good financial reporting should ensure that the revenues and expenditures of the business organization are matched according to the matching principle (Shamrock, 2012). Concerning revenues, the revenues identification principle indicates that businesses can only record their revenues when they earn it or when such revenues become recognizable or realizable. Finally, the historical principle constricts business organizations on accounting and reporting financial information by considering acquisition costs and not fair market value.
Constraints.
One of the major constraints in GAAP financial reporting framework is the objectivity principle. According to this principle, accountants are responsible for providing financial statements supported by objective evidence. Moreover, the maternity principle argues that the importance of items should be noted when reporting financial information (Shamrock, 2012). This is because the item may influence the decision of an individual in the enterprise. In ensuring these considerations are met, the consistency principle restricts businesses to employing consistent financial reporting principles from one period to another period (Shamrock, 2012). Finally, conversion principle argues that financial reporting decisions that have the least favorable outcomes should be chosen when faced with a choice between two solutions.
